Reference no: EM13509501

Sections #1 and #2: 

• For boxes F through I, assume the cash method is used, material participation, and that no Form 1099s are filed for payments made.
• This is a sole proprietorship, so these items will appear on Schedule C.
• Assume that the gross receipts include the fees received plus the expense reimbursements. Then, the expense section of Schedule C will list the expenses that were reimbursed. Note: Don't worry; if you include them in income and also in expenses, you are not getting a double-benefit. Chances are, David received Forms 1099-MISC from the mining companies that included the fees and reimbursements.

Section #3:

• The Keogh plan contribution is entered directly on Form 1040 in the "For AGI" section.
• Although the medical insurance premiums will show up as a "For AGI" deduction also, you will enter those in the Schedule C entry screen.
• All other expenses listed will be categorized and entered in Schedule C.
• Assume on Line 32 of Schedule C that "All investment is at risk."

Section #4:

• Home office expenses are entered on Form 8829.
• Assume that the business use of the home began on 06/06/2003. Use the FMV of the home and land at the time the business use started.
• The only "direct" expense is the repainting of the office. All other expenses are "indirect." Enter the total mortgage interest and total real property tax from #15 on Form 8829. The software will calculate the home office percent.
• Do not enter the file cabinet. You will override depreciation any way on Line 13 of Schedule C = $9,210.

Section #5:

• The vehicle expenses will be entered through Schedule C Line 9. Click the folder. It will take you to Form 4562. Go to Form 4562, Part V, Section B. On line 30, click the folder for Vehicle 1. Enter Steps 1, 2 (actual expenses), and 3. Override Line 21 as $4,410.
• When entering vehicle mileage, you can assume the following: Business miles = 13,050 (90%), commuting miles = 450, personal miles = 1,000, for a total miles = 14,500.
• Are fines deductible?

Section #6:

• Enter Sheri's salary in the W-2 entry screen. Don't forget to include her federal withholding from #17. Also, there is no state income tax withheld.
• Remember, commuting expenses are not deductible.
• The last 3 expenses listed plus 80% of the laptop computer are deductible on Form 2106. Form 2106 flows through to Schedule A (employee unreimbursed business expenses).
• Are expenses to prepare you for a new trade or business deductible?
• The Traditional IRA contribution is deductible "for AGI."

Section #7:

• Rental income and expenses are reported on Schedule E.
• It is ok to have 13 months of rent income if it is all received during the year.
• Special tax assessments are not deductible, but rather add to the basis of the land. Do nothing with the $2,400 assessment.
• Override Line 18 depreciation as $18,205.

Section #8:

• This write-off of worthless stock will appear on Form 8949 as a LTCL. Remember, it is worthless as of the last day of the tax year.
• Basis = $3,900.

Section #9:

• This like-kind exchange will be reported on Form 8824 in Parts I and III.
• Both March dates are important for Part I.
• This is a preview of AC362, so I'll go ahead and tell you that the realized gain is $800,000 amount realized minus the $50,000 carryover basis = $750,000. However, only the $8,000 cash boot received is recognized gain.
• Line 15 = $8,000; Line 16 = $792,000; Line 18 = $50,000.

Section #10:

• The sale of the gun collection goes on Schedule D. Remember that collectibles are taxed at a 28% tax rate. David's father died on 6/6/03 per #4. The FMV at the date-of-death is the basis since it is an inheritance.

Section #11:

• Installment sales are reported on Form 6252. You will use Part II only.
• $75,000 realized minus the $50,000 basis = $25,000 gross profit. This is a LTCG.
• As installments go, 25/75 or 33 1/3 % of every $1 of gain is taxable.
• Of the $10,800 received in 2012, $4,800 is reported as interest income on Schedule B and Line 8a of Form 1040, $2,000 is a LTCG which will carry to Schedule D Line 11, and $4,000 is nontaxable.

 

Section #12:

• Report the STCL carryover from 2011 on Schedule D Line 6.

Section #13:

• Is Vivian a dependent? Assume based on previous years; her dependency status probably did not change for the worse in the year of her death.
• Are burial expenses deductible?
• Can you report on Schedule A Vivian's medical expenses paid by the Johnsons?
• Are life insurance proceeds taxable?

Section #14:

• Interest income - pay attention to which of the 3 are taxable and which are not. Enter all 3 on Form 1099-INT. If it is tax-exempt, enter only on Line 8 of Form 1099-INT. If it is taxable, enter only on Line 1 of Form 1099-INT.
• Don't do anything with the yard sale.
• Qualified dividends - remember to enter in the ordinary and qualified boxes on the Form 1099-DIV entry screen.
• Jury duty fees received are reported as Other Income on line 21 of Form 1040.

Section #15:

• Enter the full amount of mortgage interest and real property taxes on Schedule A, and the home office amounts calculated on Form 8829 will be deducted.
• Charitable and medical - refer to #13 - these are all entered on Schedule A.
• Don't forget to enter medical miles.
• Check the sales tax box instead of the state income tax box. Enter the state (WY), and enter the additional 1% of local sales tax. Don't forget the sales tax on the large purchase.

Section #16:

• Who is a dependent?

Section #17:

• The overpayment from 2011 applied to 2012 taxes and the quarterly estimates can be entered in the entry screen for Line 63 of Form 1040. Refer to #6 above for Sheri's federal withholding.

Section #18:

• Just FYI...